Car finance could cost you dear if the dealer fails to explain it properly

Car dealers are taking customers for a ride by not being clear about how much interest they’ll pay on a motor, says Which? Car.

Overall, details of car finance deals weren’t properly explained and on some occasions interest rates weren’t even mentioned during the rigorous undercover investigation.

APR not stated

Not one of the sales staff at the 15 dealerships we visited verbally told researchers the total cost of the interest on a finance agreement. Two thirds failed to mention the APR and a third didn’t include it on their written quote either.

Without this information, it’s impossible for a buyer to work out how much interest they’d pay on a finance deal. Not including the APR in a written quote also contravenes the Consumer Credit Act.

One salesman even refused to give our shopper a written quote at all, wrongly claiming that to do so would break the law.

Car buyers risk paying thousands more

On a typical car such as a £13,000 Fiat Bravo - one of the cars we shopped for - a regular bank loan would cost a customer £15,319 (including £1,000 deposit).

Using a dealership's hire purchase scheme with would cost £18,433 – a difference of more than £3,000. Even without PPI, the hire purchase deal was still much more costly, at £15,943.

Not only are customers losing out on hundreds or thousands of pounds, some car dealers are failing to properly explain the risks of complex, expensive products.

Peter Vicary-Smith, Chief Executive, Which?, says: 'When you take out a mortgage, the bank or building society has to clearly state APR rates up front, and explain terms and conditions fully. We think car finance deals should be conducted in the same way.

'We urge car buyers to avoid showroom finance deals if they think dealers haven’t given them all the necessary information.'

Which? has reported its findings to the Office of Fair Trading (OFT), which said it was disappointed some dealers didn’t appear to be aware of their obligations under the Consumer Credit Act, or are simply refusing to comply. The OFT has promised to take enforcement action where necessary.

Which? Car finance research

The conversations with potential customers were taped and the transcripts analysed by an industry expert, who told us: 'Frankly, I had difficulty following what was being offered in many cases - I pity a regular customer trying to follow much of this bumbling verbosity.'